Telephone companies would be permitted to provide cable TV service in their local service areas under legislation that will be proposed next week by Sens. Daniel Inouye (D-Hawaii) and John Danforth (R-Mo.)D.C. sources said the telco-into-cable provision will be part of a massive piece of legislation that, if passed, would reshape the U.S. telecommunications landscape. Past attempts to pass similar legislation have failed in part because of a lack of support from key members of Congress. Now that the influential Inouye and Danforth have put their imprimatur on the bill, chances for passage improve greatly. “This will now set the framework for the debate,” said one Senate aide. The bill, called the Universal Service and Telecommunications Infrastructure Development Act of 1993, is designed to stimulate private investment in the much-hyped “electronic superhighway.” The legislation would permit not only telco entry into cable, but also cable TV entry into delivery of local telephone service. “This is a trade,” said one Capitol Hill staffer Thursday. Cable industry reaction to a draft piece of the legislation that circulated Thursday was negative. “Congress just got finished saying cable rate regulation shouldn’t be lifted until local competition to cable actually materialized,” said a National Cable Television Assn. staffer. “We don’t see why the same kind of test shouldn’t apply to lifting telco line of business restrictions.” The cable industry has long maintained that telcos would have an unfair advantage if the two industries were immediately allowed to compete head to head. The reason, according to cable exex, is because telco market share is nearly 100%, while cable market share is in the 60% range. Moreover, telcos could easily subsidize their cable forays by passing costs on to telco customers , cable advocates claim. Except for rural areas, telcos are barred under the 1984 Cable Act from providing cable service in their local regions. The legislation offered by Inouye and Danforth will lift that restriction under certain conditions. For example, a separate subsidiary must be established for the cable operations of phone companies. A copy of the draft legislation says that “allowing telephone companies to provide cable television over their telephone networks gives them an incentive to upgrade those networks, for example, with fiber optics, and will encourage new competition to existing cable operators.” The bill would bar telcos from buying out or merging with existing cable companies except in rural areas or outside a telco’s service area. Thus, deals such as Southwestern Bell’s recent $ 650 million buyout of two Hauser Communications’ cable systems in the D.C. suburbs would still be permitted under the Inouye-Danforth bill.